Gold, silver, pgms, mining and geopolitical comment and news

Fed

Mike Gleason: It is my privilege now to welcome in Greg Weldon, CEO and president of Weldon Financial. Greg has over three decades of market research and trading experience, specializing in the metals and commodity markets, and his close connection with the metals led him to author a book back in 2006, titled Gold Trading Boot Camp, where he accurately predicted the implosion of the U.S. credit market and urged people to buy gold when it was only $550 an ounce.

He is a regular presenter at financial conferences throughout the country and is a highly sought-after guest on many popular financial shows, and it’s always great to have him on the Money Metals Podcast. Greg, good to talk to you again and welcome back.

Greg Weldon: Thanks, Mike. My pleasure.

Mike Gleason: Well, Greg, let’s start by getting your update on what impact trade policy and tariffs may be having on the U.S. economy. We last spoke in July. Tariffs were just beginning to actually take hold. Since then, the President has imposed additional tariffs. Anecdotally, we have seen some effect. We’ve recently ordered some steel storage lockers for our client storage vaults and the price was increased 10% based on the higher cost of imported steel. There are also wholesale price increases coming on one line of the preparedness products we offer on our SurvivalGoods.com website. We can assume lots of businesses are experiencing the same sort of thing. Do you think tariffs are now having a significant effect? Is any of the recent weakness in the equities markets attributable to trade policy, do you think?

Greg Weldon: Yes, no, and yes. First of all, in the sense of is tariffs having an effect, absolutely. But maybe not in the way you think and not in the way you couched the question. What I find really interesting is the Fed just published a really comprehensive survey last week in which they asked businesses, manufacturing firms, I should quantify, but this is where we’re talking about in terms of trade … Manufacturing firms in terms of the impact of tax cuts versus the impact of tariffs. And the results were fascinating, because the impact of tax cuts was dramatically positive, as you might suspect. But what you might not have suspected was the impact of tariffs, which were there a degree of percentage of firms which had negative impact from tariffs? Yes. I don’t remember the exact numbers, but it was somewhere less than 20%.

At the same time, there was roughly something like 13% of firms that said that tariffs actually helped their businesses in terms of generating high revenue and to whatever degree there would be benefits to certain businesses, so offsetting and mitigating the negatives of the 20%, the 13%. So the net-net negative was not as big as you might think and was overwhelmed by the positives still from the tax cuts. We know that to be true as it relates to labor, stock buybacks, and even wages.

I think from the U.S. economic slowdown perspective not a big deal, and that’s what Trump’s counting on. But the bigger picture, absolutely an impact, because it’s affected China so much, and China was already slowing. So the GDP numbers that came out, and you know that we look at most things from a mathematical perspective, and one of the knocks on China is the slowdown in retail sales, the slowdown in money growth, the slowdown in GDP growth, the slowdown in industrial production and FDI.

But the nominal numbers are so high in trillions of renminbi that of course you’re going to have a percentage slowdown, because you came from such a low base. So something like retail sales, you’ve gone from a 15% year-over-year rate to 9, and everyone’s up in arms because the consumer in China’s slowing. No, it’s a record number every month. It’s just a lower percentage gain because the nominal numbers are so huge now.

But right here, the third quarter numbers, were different. There was real weakness, and it’s kind of even ahead of tariffs, which are going to cause more problems for China. We already see inflation on the rise. We see commodity prices in renminbi breaking out here, big thing that nobody’s really talking about too much. And the renminbi’s about to take out 7, probably going to 7-1/4. So yes, major impact, but it’s on China.

Then you see the flow through to how this affects the U.S. and how this affects other global markets, and this coming at a time when you have a lot of other things going on: The Fed, what’s happening with emerging markets, how emerging markets, specifically Turkey, might flow into Spain, and how Europe is vulnerable. So, there’s a lot more than just tariffs going on. Yes, there’s a major impact, but it’s not on the U.S. economy. It’s in the market vis-a-vis what’s happening in China as a result.

Mike Gleason: That leads me right into my next question. The President has said he would prefer to have trade without tariffs. He is imposing them as a tool to negotiate more advantageous trade deals. What do you think of the strategy here? It looks like obviously the Chinese economy is in trouble and maybe they will be more willing to negotiate, but we aren’t sure the U.S. is in nearly as strong a position as the president thinks.

If you look at the balance sheet of trade on goods and services, yeah, it appears they need us more than we need them. But that is ignoring the fact that the United States is the world’s largest exporter of debt and inflation. We need trading partners to keep buying Treasuries and keep taking our dollars in exchange for stuff. So, how would you rate the President’s chances of winning, given what we have to go on so far?

Greg Weldon: Well, you hit on all the pertinent points there, Mike. We could have a three-hour conversation just on this one topic, this specifically. But I’ll give you the short answer, and we said this before potentially on your show, is the strategy here is pretty simple. I mean you have two guys, doused in gasoline, holding matches, lit matches. The U.S. match is longer than the Chinese match, so the dynamics here is do we get to the point where we’re self-immolating and you’re basically catching on fire here? The strategy in the U.S. is that as the match in China gets shorter they’re going to blink. The numbers support that thought process certainly from the trade perspective. There’s no doubt. The numbers are overwhelming, frankly.

But you then, of course, lead to the next phase. And it’s very much like the Cold War with Russia in the ’50s and ’60s, into the ’70s and into Star Wars. It’s the same thing. It’s called MAD – Mutually Assured Destruction – but that’s what you have. China relies still, even though they’ve grown their own domestic wealth, they’ve grown their own domestic income, they’ve done all these things, it’s such a wide gap still, it’s a race against time where time is quite much infinity to some degree. So that still leaves China somewhat dependent on the U.S. consumer, frankly. But at the same time as the net debtor nation and China holding a ton of U.S. Treasuries, therein lies the potential for Armageddon, so-to-speak, where China starts dumping. Already they’re not buying, so now the next move would be they sell.

But that means everyone blows up and everyone catches on fire. So how this plays out, I don’t know. One of the things to me, Mike, is actually you know how Trump is, and sometimes he’s his own worst enemy. Does he have a valid stance? Absolutely, against Canada, against Mexico, against Europe, against China. Yes, should be no tariffs. Free trade is free trade, and we’re really the only free free trader. So it is unfair and China’s taking advantage, so something had to be done. Is this too dramatic a step? Well, we’re going to find out, and we’re kind of starting to find out, because China’s kind of melting down and that’s having a bigger impact on global markets. But if the end game is China’s upset because they were called a currency manipulator a year ago at a time when renminbi was one of the strongest currencies in the world.

Trump, I think really, from what I understand (from) back-channels, this is still kind of a little bit adolescent at some level, because kind of Trump feeds into that and he brings that on himself by acting that way sometimes, by acting out instead of being more presidential. To some degree it works, but to the degree where China’s kind of pissed off, and China’s kind of like, “You know what? You insulted us. We don’t really care. We’re willing to go down to whatever degree.”

And you say China’s hurting and people look at it China is slowing. China is not slowing. The growth is slowing. So guess what? 6% on a level of GDP that’s now significant isn’t chump change. The U.S. would kill to have those numbers. So, yes, it’s Mutually Assured Destruction and you have to think that China will ultimately come to the table. They’re traders. This goes all the way back … You can bring up Marco Polo, for crying out loud. So they’re very astute. They are very smart. I mean, I’ve dealt with them for 30 years. They know what’s going on. So I think at some point they come to the table. That’s the hoped for. The question is, how much damage is done by the time that happens?

Mike Gleason: What is your take on the current volatility in stocks? October certainly has not been kind to equities. Metals investors are certainly watching the action closely. Unfortunately, with metals trading inversely correlated with equities for the time being, the road to higher gold and silver prices is likely through lower prices on the Dow. The total absence of safe-haven buying has hurt metals, at least as far as we see it. Do you think we have much further to go in this correction in stocks?

Greg Weldon: Yeah. I think it’s only begun. And I thought yesterday was a very dangerous day, yesterday being Tuesday, the 23rd I think it was. Because you have the setup for kind of like a crack, a big crack. It was almost, and I’ve been talking about this since the beginning of the year, there are correlations to 2007 and ’08, and that’s more macro in setup, but when you look at the market structure and some of the more overlaid type of correlations, there’s a lot of 1987 here.

We talked about this in the beginning of the year, where the bond market would come under pressure, particularly, and if you go all the way back to the piece I did in September over a year ago and called it Shrinkage, after Janet Yellen came out, dropped the word, “We’re going to normalize policy,” which I hated, because what does that mean? It means nothing, versus we’re going to go to a “neutral” policy.

That change was huge, because what it did was it exposed the two-year note for being way out of position, because it was way too low relative to where neutral would be a level that correlates to inflation. So immediately the two-year note was going to be the target, and it was, and you had a huge move. We actually said it was going to 265 when it was 140.

It got to 265. It was almost exactly the move. Why? It wasn’t rocket science. It was because the inflation rate was somewhere between 220 and 250 if you look at CPI, and that’s what I’m going to use. The Fed can use PCE. I’m still going to use PCI relative to the markets, because that’s what the markets still are going to look at frankly.

So, that move was easy, but then the thought process was even last September coming into now that if the Fed said they’re going to go further, which they did, Jackson Hole and then the September meeting, that would be a problem, because then you bring the bond market into play. Because you can push the two-year notes only so close to the bond markets, the yield curve is not going to invert here and that’s going to push the bond yield up, which it did. It broke 3-1/4 at the same time Turkey was melting down for a second time, when inflation jumped to the level of interest rates they just jacked 600 basis points to get to, that single day kind of precipitated all of this.

But if you look back, this has been a bond market buildup much like ’87, where in that case the bond market was under a lot of pressure, it was the long end then. It’s the short end now. Leading into August, when you kind of had some kind of denouement in the bond market, and then all of a sudden stocks started to feel it, emerging markets started to feel it. You saw emerging markets’ currencies crack in August. Same kind of setup, different era.

To me, this volatility was expected. We said at the end of August if the Fed moves in September you’d see a selloff in October. That’s exactly what’s happened, and I think it’s just beginning. I think you have much more volatility. This is nothing. The on-balance volume indicators, everything. You haven’t had any liquidation and that’s a dangerous accident waiting to happen, when if you go to sell somebody’s high priced stocks that have huge ownership and a diminished turnover in shares because the price is so high, you have a potential vacuum of buyers under this market. So I don’t think you’ve seen the worst of it by any stretch of imagination.

Mike Gleason: Just over the last week or two, we’ve heard a couple of former Fed chairs, Alan Greenspan and Paul Volcker, both coming out and talking about what a bad spot we’re in economically and that the chickens will be coming home to roost here before long. Talk more about this tough spot that the Fed is in, because it seems to us that they’re really stuck between a rock and a hard place here with rates. They want to keep inflation from getting out of control, but they also probably don’t want to kill the economy. And we both know how important, say, the housing and auto sales sectors are in the economy, for instance; And sales of those two big ticket items are very heavily linked to interest rates, and we can see that they’ve been starting to show signs of cracking here of late. How do you see the rising interest rates impacting the consumer drag, and what might that mean for the economy moving forward?

Greg Weldon: Well, I think that’s what the market is exactly telling us, because, again, in August we said if the Fed moves in September, you’re going to have a catalyst here. Because you want to chase inflation, but how far do you chase inflation when you put the consumer at risk? And the consumer is at risk; the consumer’s already stressed. You can talk about (how the) Target CEO says the consumer’s the strongest he’s seen in 30 years. The Fed even mentions, “guess what, consumer balance sheets are pretty “‘healthy'”. There’s nothing healthy about the consumer. This is a steroid-addled consumer that has lived for years on monetary steroids.

The correlations are precise in terms of balance sheet expansion, increases in retail sales. It went from QE1 to QE2 to QE3 to fiscal QE because you were flatlined in 2015 into the middle of ’16 until Donald Trump won the election. And then it was fiscal QE. You’ve run that out now, and everyone owns these shares. To the degree that the Fed keeps pushing here, it puts the consumer at risk because the consumer has borrowed against the stock market unrealized paper profits in a paper asset that they believe cannot go down in price. Doesn’t that sound familiar, 2007, 2008, housing, mortgage equity withdrawal, and huge consumer debt? They went upside down.

You have the same setup here. Different dynamics, but the same exact setup: over-leveraged consumer relative to the stock market. If the stock market gets hit, the consumer will go down. I think we’ve talked about some of these stats before. Before the September rate hike, the monthly payments on interest cost, in other words, paying the interest to carry the credit card debt, not paying down the debt., $325 billion per month it’s gotten up to. A record high, number one, and number two, 60% of total retail sales on a monthly basis, which is $510 billion a month. That’s number one.

Number two. Consumer credit card debt now accounts for 78% of all new consumer debt over the last 12 months. Further, that growth in that debt at $72 billion nominally over 12 months exceeds the growth in retail sales at $31 billion by more than two to one. Now, some of that is using credit cards for more things. But if you look at the Fed’s New York household survey, you see people under the median income of $58,000 a year are using credit cards and borrowing money to pay their bills. They don’t own stocks; the tax cuts are not huge enough with them. It’s more corporate.

This is why they’re talking of middle income tax cuts now, because they’ve kind of left behind that lower level. It’s half the economy. So, wow, to think that this is kind of the situation where you put the Fed behind the 8 ball. Do they keep chasing inflation higher at the risk of deflating the consumer and causing a collapse? That’s the big question. I don’t know how it plays out, but I think the Fed is very close to taking their foot off the brake. And that’s why we think there’s a new trade coming at some point in here, where it’s dollar down and gold rallies.

Mike Gleason: Before we get a little bit more into gold and silver, Greg, I know you keep close tabs on many different commodities and all the precious metals so I wanted to get your update on what we’re seeing in the PGMs, the platinum group metals, because I’ve really been fascinated by this widening gap between platinum and palladium because, my goodness, we’ve got about a $300 palladium premium versus platinum right now as we’re talking on Wednesday afternoon. What’s going on there, Greg, and should we expect palladium to reach parity with gold here soon?

Greg Weldon: You know what, honestly, it’s really hard to handicap what’s going on here, Mike. For the life of me it’s kind of in its own universe. Palladium has been. This has been going on really for the better part of a year and a half, two years, where palladium got up and then exceeded $1,000 and really came off hard. We actually got short, and we had some nice profits over a two-day period which then evaporated over the next two weeks. We didn’t catch this move because, frankly, I didn’t think this was going to be a situation where palladium was going to go off on its own like it has.

You can look at some of the mining situations. There are some reasons you can use, but they’re more excuses. Why this market is doing what it’s doing is not empirically evident to me, so I don’t know. I honestly don’t know. How far can it go? I don’t know. I mean, you know how these things are. You’ve been around long enough to know that you can never count on any kind of situation, any kind of parity, anything going to levels that you never thought possible before. You can’t think that way.

So, could palladium get to parity with gold? It’s pretty dang close already, so yeah. Sure, it could. Could it exceed gold? I mean, frankly, if you want to take it to its base level and strip away all the monetary, all the psychological, all the historic, all the emotional attachments to gold and, even to a lesser degree, silver, if you go to the heart of the matter, which is the supernova, which is where these elements are created. It’s why they’re the most rare elements in the universe, not just in the world, in the universe, because they are created at those last moments when a star collapses into itself. So palladium, from that perspective, is a more rare metal than gold. So maybe it should be priced higher.

Mike Gleason: Yeah, good point. It’ll be very interesting to see that play out. Well, as we begin to wrap up here, Greg, I’d like to have you share your thoughts with us, where do you think you think we go from here. Also give us any other insights on what you’re going to be watching here in the weeks ahead as we approach the all-important November elections and then the last couple of months of the year.

Greg Weldon: Yeah, the elections are kind of a wild card. It’s funny, you could actually say that having kind of a gridlock is actually when you get your best performance in stock market. So, I don’t give that a huge, high risk factor. If there were to be a surprise, it’s a risk, no doubt. But I don’t think that that’s the way that this next phase is going to play out. I don’t see that as the catalyst, per se. Not the highest odds, for sure.

I’m really watching Europe, Michael. I mean, I think that what’s going on with the banks in Europe, what’s going on with Italy and Spain, let’s not forget Spain. There’s a lot of focus on Italy, and we know… the Northern League and the Five Star Movement, they don’t want the euro. And they picked a guy that would appease the president to be their economics minister when it was almost potentially going to go back to another election when they could’ve actually lost their coalition. So they brought the guy in. It’s going to be, “Rah, rah, the euro.” They’re not, “Rah, rah, the euro.” We know they’re not.

And we watch the yield spreads in Spain and Italy relative to Germany, because they’ve widened. This is a risk yield spread. It gives you a sense for the risk. These are countries. I mean, we don’t have to talk about the debt, but we should because no one talks about it. It’s massive. It’s still huge. I mean, Spain, not in quite the situation as Italy but they’re above 90% of GDP. It’s still a crisis-like setup. So, that’s another huge risk factor, and if I’m watching anything right now that’s kind of what I’m watching.

And then the other thing, of course, is the high-flying tech shares in the U.S. because that could be an accident waiting to happen. That’s when you start creating real doomsday scenarios that are not macroeconomic and probably not long-lasting, but would have a major impact. If you have some of these stocks where there’s no buyers under them and people go to liquidate and it starts out innocently enough, let’s take profits, take some money off the table, I’m in Palm Beach County. You know where I live.

I’ve been approached more in the last month, and I’m not talking just last week or so. I’m talking back into September by some of my wealthy friends that are not in the business. I mean, this is one of the richest counties in the country and I’m at the low end of the scale over here compared to some of these people that I know, right? But they’re asking me, “I feel like I should take some caution here.” Yeah, returns are diminished. You’ve gotten all the good news from Trump priced in. You’ve had the big rally, and now people are a little nervous they’re going to let it slip away. That’s a dangerous situation. When these kind of people start asking me, I take notice because that is an accident waiting to happen. So the risk points are kind of like the U.S. high-flying tech shares, and then what’s going on in Europe to me is really where the manifestation of all this takes place.

Greg Weldon: Well, the release valve always has been and will be again the dollar. So when the Fed finally wakes up and realizes, “Hey, maybe we’ve pushed the consumer a little too far here and we’re at risk now of not meeting our GDP growth goals, which are 4 to 5% normally”; are you kidding me? For next year? You think that’s going to happen?” Let alone the fact that the Fed’s Dot Plot gives you 3-1/4 to 375 next year, the futures market is actually priced to imply some belief in the market that the Fed won’t even get to 3% with Fed funds.

And the market has been right throughout this entire time since 2014 versus the Dot Plot. They have under plotted the Dot Plot, and that has been the right move. If that plays out, and I think it will, it means that the Fed may be closer to taking their foot off the break than they’re going to keep moving for the next 18 months. I don’t see that. And when that slip takes place, the dollar is very vulnerable to me, technically speaking, because it’s a long-term pattern that goes all the way back to the ’70s and you’re in the zone here where the timing is perfect, the technicals are perfect, the Fed kind of eases off, the dollar gets whacked, and that’s going to be the catalyst for the next move in gold and silver. And we like gold and silver right here.

The risk is not insignificant because if the Fed goes too far and the Fed goes further, frankly, that runs the risk of bringing deflation. You see, some of the commodities are wobbling here. We’re bearish on crude oil, but that’s it’s own universe as a bonus for your listeners. But we like gold and silver; we just think dollar’s the release valve, it always has been, it will be again. And when that time comes, and we think it’s sooner rather than later, it may not imminent but it’s laying in wait, but when it happens you’re going to want to belong to metals.

Mike Gleason: Well, great stuff. Once again, Greg, we love having you on and appreciate your insights as always. Now, before we let you go, please fill people in on Weldon Financial, how they can find you, and any other information they should know about you and your firm.

Greg Weldon: Sure, yeah, I’ve been in the industry 35 years. Started in Florida Comex, worked at Moore Capital, one of the biggest hedge funds in the world in New York, and started my own gig 20 years ago. I’ve been doing this for 20 years. We provide Trade LAB as part of the WeldonLive service. It’s all-in service, one price. You come to the website, sign up, you can get a free trial. We have specific trades in every area: stock indexes, ETFs, bond futures, the currencies, the metals, the energies, the agriculture commodities. We really cover it all.

I’m a trader by trade, and the research is from that perspective, to help you navigate these markets and maybe even some money at the same time. We call it the research that pays for itself, and actually, right now we’re heading into the new year, we’re going to be raising prices, so we’re kind of running a special. This year’s price is still available, so anyone can take advantage of that by visiting the website. It’s WeldonOnline, or you can email me at any time, gregweldon@WeldonOnline.com.

Mike Gleason: Well, excellent. Thanks again for your time, and have a great weekend, Greg. I look forward to our next conversation. Take care.

Greg Weldon: Yep, you too Mike. You do a great job. Keep it up.

Mike Gleason: Well, that will do it for this week. Thanks again to Greg Weldon of Weldon Financial and WeldonLive. For more information, simply go to WeldonOnline.com where you can sign up for a free trial. Again, all of that information at WeldonOnline.com. Be sure to check that out.

Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 80,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.

March has been a pretty bleak month for investors in almost all asset classes. Equity investment, which had been a such a sure thing for the past few years, has been wavering and stocks in general are well off their highs and looking vulnerable to further falls, bitcoin has seen its bubble burst and has halved in value – and we think there could be more pain yet to come for the past year’s speculative investment star, and even precious metals have come down with gold languishing at the time of writing at around $1.312 (spot gold had fallen to around $1,307 an ounce at one stage yesterday morning) and could well breach that on the downside this week although it has made a small recovery since.

The bond market is also weaker on the prospect of continuing Fed interest rate rises.

The only positive spot seems to be the U.S. dollar, but people have short memories. The dollar index did see a small recovery to sit back above the 90 level but has been under pressure again and it is still around 12% below the level it was when President Trump took office only 15 months ago. While there now seems to be a consensus that the dollar could continue to see a short term rise, along with whatever decision the FOMC meeting next week makes on U.S. interest rates, there are still many commentators who feel that a rising dollar is not sustainable long term and that it could quickly start coming down again. If so that is certainly gold positive – at least in dollar terms

As for gold and the other precious metals we have noted before that they are facing headwinds, but perhaps not insuperable ones. Global demand – particularly in the Middle East and Asia in general – remains relatively positive and there is the distinct impression that global new mined gold production has at last peaked and may be beginning to turn down, albeit at a pretty marginal rate.

Some commentators sing the praises of silver as perhaps the best speculative bet, with a current gold:silver ratio of over 80. They feel the ratio is too high and recent pricing history tells us it is likely to come down from this level thus enhancing the percentage growth prospects for silver over gold.

Of the other precious metals, although it has some adherents, platinum tends to follow the ups and downs in the gold price to an extent, while palladium, for the time being at least, looks to be in a better fundamental position due to a perceived production deficit and stronger industrial demand in the autocatalyst sector.

So gold could fall back further – much will depend on whether the FOMC meeting seems to be suggesting a further two, three or even four more rate hikes this year, although given that equity and bond markets are looking vulnerable to more than the generally expected two more rate increases this year, we suspect that discretion may prove to be the better part of valour in this respect. Certainly if the Fed looks at the historical effects of a rising rate scenario, caution may well reign. Under such circumstances gold could see something of a recovery back to the $1,350s by the mid-year – but don’t put your shirt on it!

The above article is a lightly edited version of an article posted a day earlier to the Sharps Pixley website

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

New York followed Shanghai higher yesterday leaving a $2.40 differential. Today, London turned higher, also following Shanghai but raising the differential to $9.27 from yesterday’s $7.

All global gold markets are seeing a rebound from the breakdown of the Technical picture from $1,250.

Silver Today –Silver closed at $15.92 yesterday after $15.84 at New York’s close Monday.

LBMA price setting: The LBMA gold price was set today at $1,221.40 from yesterday’s $1,219.40. The gold price in the euro was set at €1,071.03 after yesterday’s €1.064.23.

Ahead of the opening of New Yorkthe gold price was trading at $1,220.80 and in the euro at €1,071.35. At the same time, the silver price was trading at $15.90.

Price Drivers

The gold price is rebounding and not simply because it is a natural market move to do so. Janet Yellen’s comments yesterday in front of the Senate are playing a part. We expect more of the same from her today.

The Fed

Janet Yellen’s comments yesterday made it clear that the Fed wants a ‘neutral’ interest rate, neither higher than inflation nor lower. At the moment it is lower, but with inflation falling in the U.S. the Fed may well delay another rate hike beyond year’s end because they may see ‘neutral’ rates without raising rates again this year. This has softened the dollar, which at one point nearly touched the point at which the dollar falls into a ‘bear’ market. We see that as coming very soon. It will benefit the dollar gold price.

The Gold Price

We do note that with demand and supply nearly in balance in London before the breakdown the sales over two weeks of 27 tonnes of physical gold into the London Market tipped that balance and the price fell.

What is important to understand about the gold price is that it does not reflect total demand and supply. For instance, in June, some reports suggest 220 tonnes of gold were sold into India (Although others suggest a much smaller 75 tonnes – Editor). This did not impact the gold price, because it did not go through the market. It was contracted and a price between the contractors was set against the afternoon price setting in London. It did not travel through the market. But sales from the SPDR cause the Custodian to unload that gold into the London market, which does affect the price. Essentially, the gold price is determined by what is called the ‘marginal’ supply and demand, that is the unforeseen amount that are needed or got rid of in the market. Of course, this does not reflect total demand and supply and allows speculators considerably more pricing power than would be the case if all gold sales and purchases do go through the market.

In China there is an interbank market in gold, which operates off market, but the bulk of the physical gold bought and sold does go through the Shanghai Exchange . With both an institutional and now a retail physical arbitrage market between London and Shanghai in operation Chinese and other international investors can affect price by dealing between the markets.

We believe that where gold is contracted between two parties they may well find that the Shanghai Benchmark prices are more reflective of a truer gold price than the LBMA gold price settings and adjust the price they use to Shanghai’s in the future, as some exchanges are already doing.

Gold ETFs

Yesterday saw no sales or purchases from or into the SPDR gold ETF or the Gold Trust. The SPDR gold ETF and Gold Trust holdings are at 832.391 tonnes and at 211.41 tonnes respectively.

Gold Today –Gold closed in New York at $1,257.30 on Wednesday,from Tuesday’s $1,279.00, a fall of $21.70. On Thursday morning in Asia it fell to $1,254.00, after the minutes of the Fed were published yesterday and the dollar rebounded.

LBMA price setting: $1,253.75 down from Wednesday’s $1,270.90.

Yuan Gold Fix

Trade Date

Contract

Benchmark Price AM

Benchmark Price PM

2016 05 19

2016 04 18

SHAU

SHAU

265.15

268.71

264.47

268.15

Dollar equivalent @ $1: 6.5646

+$1: 6.5540

$1,256.30

$1,275.22

$1,253.08

$1,272.57

None of the main global gold markets dominated the others as they all moved with the dollar. As you can see from the above, the fall in the Yuan was far less than that of New York or London as the Yuan continued to show weakness, softening the fall in the Yuan. The fall was most clearly seen in the dollar which has risen strongly in the last two days.

The trading pattern of gold is reflecting exchange rates and not so much the balance of supply and demand for gold. This is what gold should do, but with the influence of dealers moving prices down in the expectation of sellers, the price does exaggerate its moves, as a measure of value, to some extent.

The dollar index is almost up strongly at 95.36, up from yesterday’s94.83. The dollar is also stronger against the euro at $1.1194, stronger than Wednesday’s $1.1275.

The gold price in the euro was set at €1,118.42 down from Wednesday’s €1,126.47.

Ahead of New York’s opening, the gold price was trading at $1,250.00 and in the euro at€1,116.67, and then slipped a further few dollars after the open.

Silver Today –The silver price closed in New York on Wednesday at $16.84 lower than Tuesday’s $17.23 a fall of 39 cents of 2.26%. Ahead of New York’s opening the silver price stood at $16.50. But then slipped further in percentage terms bringing the gold:silver ratio up to over 76 for the first time since mid-April.

Price Drivers

The publication of the Fed minutes yesterday galvanized the markets, including precious metal markets. As with all patterns that we saw yesterday, where gold and silver prices come into balance, any news can have a disproportionate impact, either way. This happened today with gold prices dropping $25 in the strong move we were forecasting.

It was the dollar that precipitated the move as it bounced to $1.1225 against the euro. As you can see above it was seen solidly in the dollar index. Why? The Fed minutes mentioned the “stabilization” of the dollar, as part of the factors that points to a potential rate hike in July.

The Fed is fully aware that the publication of the minutes would have a market impact as it has done. We see this as part of a process of ‘testing the water’ to see what would happen with a rate hike.

For instance, what does “dollar stabilization mean? To us it means that the dollar rise has been contained and will not threaten the U.S. economy because it will not rise further. The market reaction was to make it rise but not to anywhere near its peaks. Today and for a while, the dollar may continue to bounce and the Fed will be watching this carefully.

They were also concerned because of, “Unanticipated developments associated with China’s management of its exchange rate.”As you can see above the Yuan is continuously falling in small steps, something they need to do to counter the fall in the euro and Yen in particular.

They do not want a strong dollar and this is important enough to postpone a rate hike, if it is seen.

Meanwhile gold is on the back foot for now. Who are the main beneficiaries of this fall? It’s the east, China mainly, as the west slows its buying and makes available more gold for the eastern interests.

Gold ETFs – Wednesday saw no purchases or sales into or from the SPDR gold ETF or the Gold Trust. This leaves their holdings at 855.886 and 198.38 tonnes in the SPDR & Gold Trust, respectively.

Silver –The Silver price pulled back sharply and needs more time to find its bottom still.

Since the beginning of the year, the greenback has shown it’s not almighty after all; and gold – the barbarous relic as some have called it – may be en vogue again? Where are we going from here and what are the implications for investors?

Like everything else, the value of currencies and gold is generally driven by supply and demand. A key driver (but not the only driver!) is the expectation of differences in real interest rates. Note the words ‘perception’ and ‘real.’ Just like when valuing stocks, expectations of future earnings may be more important than actual earnings; and to draw a parallel to real interest rates, i.e. interest rates net of inflation, one might be able to think of them as GAAP earnings rather than non-GAAP earnings. GAAP refers to ‘Generally Accepted Accounting Principles’, i.e. those are real-deal; whereas non-GAAP earnings are those management would like you to focus on. Similarly, when it comes to currencies, you might be blind-sided by high nominal interest rates, but when you strip out inflation, the real rate might be far less appealing.

It’s often said that gold doesn’t pay any interest. That’s true, of course, but neither does cash. Cash only pays interest if you loan it to someone, even if it’s only a loan to your bank through a deposit. Similarly, an investor can earn interest on gold if they lease the gold out to someone. Many investors don’t want to lease out their gold because they don’t like to accept the counterparty risk. With cash, the government steps in to provide FDIC insurance on small deposits to mitigate such risk.

While gold doesn’t pay any interest, it’s also very difficult to inflate gold away: ramping up production in gold is difficult. Our analysis shows, the current environment has miners consolidating, as incentives to invest in increasing production have been vastly reduced. We draw these parallels to show that the competitor to gold is a real rate of return investors can earn on their cash. For U.S. dollar based investors, the real rate of return versus what is available in the U.S. may be most relevant. When it comes to valuations across currencies, relative real rates play a major role.

So let’s commit the first sin in valuation: we talk about expectations, but then look at current rates, since those are more readily available. When it comes to real interest rates, such a fool’s game is exacerbated by the fact that many question the inflation metrics used. We show those metrics anyway, because not only do we need some sort of starting point for an analysis, but there’s one good thing about these inflation metrics, even if one doesn’t agree with them: they are well defined. Indeed, I have talked to some of the economists that create these numbers; they take great pride in them and try to be meticulous in creating them. To the cynic, this makes such metrics precisely wrong. To derive the real interest rate, one can use a short-term measure of nominal rates (e.g. the 3 month T-Bill, yielding 0.26% as of this writing), then deducting the rate of inflation below:

The short of it is that, based on the measures above, real interest rates are negative. If you then believe inflation might be understated, well, real interest rates may be even more negative. When real interest rates are negative, investing cash in Treasury Bills is an assured way of losing purchasing power; it’s also referred to as financial repression.

Let’s shift gears towards the less precise, but much more important world of expectations. We all know startups that love to issue a press release for every click they receive on their website. Security analysts ought to cut through the noise and focus on what’s important. You would think that more mature firms don’t need to do this, but the CEOs of even large companies at times seem to feel the urge to run to CNBC’s Jim Cramer to put a positive spin on the news affecting their company.

When it comes to currencies, central bankers are key to shaping expectations, hence the focus on the “Fed speak” or the latest utterings coming from European Central Bank (ECB) President Draghi or Bank of Japan’s (BoJ) Kuroda. One would think that such established institutions don’t need to do the equivalent of running to CNBC’s Mad Money, but – in our view – recent years have shown quite the opposite. On the one hand, there’s the obvious noise: the chatter, say, by a non-voting Federal Open Market Committee (FOMC) member. On the other hand, there are two other important dimensions: one is that such noise is a gauge of internal dissent; the other is that such noise may be used as a guidance tool. In fact, the lack of noise may also be a sign of dissent: we read Fed Vice Chair Fischer’s absence from the speaking circuit as serious disagreement with the direction Fed Chair Yellen is taking the Fed in; indeed, we are wondering aloud when Mr. Fischer will announce his early retirement.

This begs the question who to listen to, to cut through the noise. The general view of Fed insiders is that the Fed Governors dictate the tone, supported by their staff economists. These are not to be mistaken with the regional Federal Reserve Presidents that may add a lot to the discussion, but are less influential in the actual setting of policy. Zooming in on the Fed Governors, Janet Yellen as Chair is clearly important. If one takes Vice Chair Fischer out of the picture, though, there is currently only one other Ph.D. economist, namely Lael Brainard; the other Governors are lawyers. Lawyers, in our humble opinion, may have strong views on financial regulation, but when it comes to setting interest rates, will likely be charmed by the Chair and fancy presentations of her staff. I single out Lael Brainard, who hasn’t received all that much public attention, but has in recent months been an advocate of the Fed’s far more cautious (read: dovish) stance. Differently said, we believe that after telling markets last fall how the Fed has to be early in raising rates, Janet Yellen has made a U-turn, a policy shift supported by a close confidant, Brainard, but opposed by Fischer, who is too much of a gentleman to dissent in public.

It seems the reason anyone speaks on monetary policy is to shape expectations. Following our logic, those that influence expectations on interest rates, influence the value of the dollar, amongst others. Former Fed Chair Ben Bernanke decided to take this concept to a new level by introducing so-called “forward guidance” in the name of “transparency.” I put these terms in quotation marks because, in my humble opinion, great skepticism is warranted. It surely would be nice to get appropriate forward guidance and transparency, but I allege that’s not what we have received. Instead, our analysis shows that Bernanke, Yellen, Draghi and others use communication to coerce market expectations. If the person with the bazooka tells you he (or she) is willing to use it, you pay attention. And until not long ago, we have been told that the U.S. will pursue an “exit” while rates elsewhere continue lower. Below you see the result of this: the trade weighted dollar index about two standard deviation above its moving average, only recently coming back from what we believe were extremes:

If reality doesn’t catch up with the storyline, i.e. if U.S. rates don’t “normalize,” or if the rest of the world doesn’t lower rates much further, we believe odds are high that the U.S. dollar may well have seen its peak. Incidentally, Sweden recently announced it will be reducing its monthly bond purchases (QE); and Draghi indicated rates may not go any lower. While Draghi, like most central bankers, hedges his bets and has since indicated that rates might go lower under certain conditions after all, we believe he has clearly shifted from trying to debase the euro to bolstering the banking system (in our analysis, the latest round of measures in the Eurozone cut the funding cost of banks approximately in half).

On a somewhat related note, it was most curious to us how the Fed and ECB looked at what in some ways were similar data, but came to opposite conclusions as it relates to energy prices. The Fed, like most central banks, like to exclude energy prices from their decision process because any changes tend to be ‘transitory.’ With that they don’t mean that they will revert, but that any impact they have on inflation will be a one off event. Say the price of oil drops from $100 to $40 a barrel in a year, but then stays at $40 a barrel. While there’s a disinflationary impact the first year, that effect is transitory, as in the second year, inflation indices are no longer influenced by the previous drop.

The ECB, in contrast, raised alarm bells, warning about “second round effects.” They expressed concern that lower energy prices are a symptom of broader disinflationary pressures that may well lead to deflation. We are often told deflation is bad, but rarely told why. Let’s just say that to a government in debt, deflation is bad, as the real value of the debt increases and gets more difficult to manage. If, in contrast, you are a saver, your purchasing power increases with deflation. My take: the interests of a government in debt are not aligned with those of its people.

Incidentally, we believe the Fed’s and ECB’s views on the impact of energy prices is converging: we believe the Fed is more concerned, whereas the ECB less concerned about lower energy prices. This again may reduce the expectations on divergent policies.

None of this has stopped Mr. Draghi telling us that US and Eurozone policies are diverging. After all, playing the expectations game comes at little immediate cost, but some potential benefit. The long-term cost, of course, is credibility. That would take us to the Bank of Japan, but that goes beyond the scope of today’s analysis.

To expand on the discussion, please register for our upcoming Webinar entitled ‘What’s next for the dollar, currencies & gold’ on Tuesday, May 24, to continue the discussion. Also make sure you subscribe to our free Merk Insights, if you haven’t already done so, and follow me at twitter.com/AxelMerk. If you believe this analysis might be of value to your friends, please share it with them.

Sound money issues make for good politics these days. The leading Republican candidates have all suggested reforms to our monetary system. The topic is popping up in debates as well as interviews. Predictably, Fed worshippers and proponents of central planning everywhere are snickering and trotting out the usual responses.

He’s terribly smug given his essential argument is for how great centrally planned monetary policy is. The collapse of the Soviet Union and other managed economies revealed the pitfalls of putting a handful of bureaucrats in charge of markets. But his point of view represents what most people are getting from the financial press, Wall Street, and Washington DC. Let’s have a look at Hiltzik’s main points then take them apart.

False Claim #1: The economic science is settled.

Mr. Hiltzik takes a page out of the playbook of climate activists. He wants people to believe that only wingnuts, Luddites, and Republican presidential candidates are still talking about gold. He cites a 2012 survey of economists supposedly “drawn from the entire spectrum of economic theory.” None thought a return to a gold standard was a good idea. Case closed.

One assumption is clearly wrong. The entire spectrum is not represented. None of today’s prominent Austrian school economists are included on the panel. You won’t find names like Mark Skousen, Hans-Herman Hoppe, Robert Murphy, or Joseph Salerno. But you will find Barry Eichengreen, who has criticized the Fed for not being interventionist enough, and Austan Goulsbee, who served as chief on Obama’s Council of Economic Advisors.

The truth is there are plenty of economists who question the stewardship and discretion of Congress, the president, and, especially, Federal Reserve bankers. Heck, even Alan Greenspan is criticizing the fed and talking about an important role for gold these days.

Lots of people, not just economists, wonder if the Fed’s promise to foster higher prices forever is really working out for ordinary folks. Millions of Americans stand to get hurt by unlimited borrowing and money creation.

Following Nixon’s final abandonment of gold redeemability in 1971, all restraint vanished.

That is why presidential candidates talk about reforms. Last week, a 53-44 majority of senators voted for the Audit the Fed bill. It wasn’t enough to defeat the Democratic filibuster, but clearly frustration with the status quo is widespread.

Proponents of unlimited money creation and politburo style management of our currency and markets are the true wingnuts.

False Claim #2: A gold standard favors the wealthy, at the expense of everyone else.

Hiltzik tells us “As far back as the 19th century, it was well understood that the ‘stability’ provided by linking currencies and exchange rates to a fixed value of gold benefited only one economic class – creditors…” In other words bankers and the wealthy, people in a position to loan money, supported gold. The move to fiat currency benefitted everyone else.

Apparently Hiltzik isn’t familiar with the origins of the Federal Reserve. It is privately held by the largest banks (i.e. lenders) in the United States. It was devised, in secret, by the most prominent bankers and politicians of the early 20th century, and they certainly didn’t do it to help the poor. They did it to help themselves.

The current system is an unmitigated disaster for virtually everyone outside of Washington DC and Wall Street. Consider the following charts from Zerohedge detailing just how awful the recent trillions of dollars in money creation and unlimited expansion in government has been for Americans at large:

Since Hiltzik seems to care about the common man, he should join the large and growing movement of people who want a return to sound money. The idea is so right for these times.

*Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

Contributed commentary from Clint Siegner of Money Metals Exchange. The views expressed are his own and are not necessarily those of lawrieongold.com. Although this commentary was written a week ago, before the latest sharp stock market falls and mild recovery, it makes some interesting and valid points. This is very much a U.S.-centric appraisal (almost half our readers are in the U.S. so valuable in that context) and may not apply to the same extent in other parts of the world. However it is still the U.S. futures markets which remain the principal global price setters for the precious metals complex for the time being – a position which may ultimately be usurped by China, but not yet!

Precious metals investors heading into 2016 worry the dollar will continue marching ahead, right over the top of gold and silver prices. The Fed is telegraphing additional rate hikes throughout the year, and commodity prices – led by crude oil – are falling. There have been tremors in the biggest beneficiary markets of all when it comes to the Fed’s QE largesse – U.S. equities and real estate. And the possibility of a recession is growing, both in the U.S. and around the world.

There are plenty of reasons we might see even lower official inflation numbers and a stronger dollar in 2016. But don’t think for a second that consumer prices or living costs will fall. They haven’t, they aren’t, and they never will in a sustained way – thanks to the Fed’s creation in 1913. This is where the deflationists have it wrong.

The impact of further disinflationary forces or even a deflationary episode on precious metals prices is a bit harder to predict.

The bear case for precious metals is rather simple. Should metals trade like commodities, they are likely to follow other raw materials lower. If we get a liquidity crunch akin to the 2008 financial crisis, just about everything will be sold as investors raise cash to meet margin calls or flee to the dollar as a perceived safe-haven.

There is also the possibility that metals prices will simply be managed lower. Growing numbers of investors realize that Wall Street is not a bulwark of free markets. Major banks have admitted to rigging markets against their own customers, and the Federal Reserve aggressively intervenes in markets in its quest to centrally plan the world economy. Why wouldn’t the Fed also be active in trading precious metals? Those dismissing the notion that metals prices are manipulated are naive.

Today’s Situation Is Different Than 2008

The bear case assumes history, in particular the experience surrounding 2008, will repeat. Or that there is still plenty of ability for anyone seeking to force metals prices lower in the futures market to actually do so. Or both.

Maybe. But relying on those assumptions could be a tragic mistake.

For starters, the U.S. dollar is already near record highs. Meanwhile, commodities and precious metals have been beaten down mercilessly. This set-up is the complete opposite of what faced investors leading up to the summer of 2008. And even though stocks and commodities got hammered in 2008, gold posted modest gains for the year as a safe haven from the threat of a collapsing economy.

Lower gold and silver prices have already produced an imbalance between bullion supply and demand. Supply deficits in 2016 are likely to make the developing problem with inventory at the COMEX and other exchanges even bigger. Registered stocks of gold all but vanished recently as bargain hunters, particularly in Asia, have been happy to buy and take delivery. Silver inventories aren’t in much better shape.

More deliverable bars must come from existing stocks, but holders won’t be anxious to sell. Those with “eligible” COMEX bars have certainly been slow to convert them to “registered” of late. By all indications, miners will be unable to provide the needed supply.

With prices below the cost of production, mine output is set to drop significantly this year. [Editor’s Note: Here we might disagree. The strength of the dollar against most producing countries’ currencies means the economics of gold mining at a lower US dollar price is not reflected in countries where the price received for their output has actually risen in the local domestic currency in which most of their costs are incurred. We suspect that global new mined gold production may thus be flat this year – indeed it could still rise marginally -, although lack of new project finance availability will eventually see production turning down as older mines are phased out and grades fall, not to be replaced by new projects and expansions coming in.]

If the metals markets look forward, as markets are supposed to do, they will anticipate the Fed’s response to a strengthening dollar and economic malaise. In 2008, investors knew little about the lengths to which the Fed would be willing to go. Today they DO know. The Fed will overwhelm deflation by creating new inflation.

Markets are completely dependent on Fed stimulus, and people simply expect officials to roll out an even bigger initiative whenever the need arises. Anything to prevent the cleansing effect of corrective forces from restoring heath to the economy. In a recent interview, market expert Jim Rickards predicted the Fed will abandon rate increases and actually commence lowering before the year’s end.

Metals investors should take heart in the fact that gold and silver prices have shown some resilience in the face of disinflationary forces recently. Both metals outperformed oil and most other commodities last year. Yes, prices declined roughly 11% for both metals. But crude oil fell 36% and copper lost 22%. The precious metals gained purchasing power against many other things.

Bottom line: Don’t bet on a meaningful deflation. Fed officials will not allow it. And they can keystroke dollars into existence until the power goes out for good.

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

One of the buzz words going around at the moment re. Janet ‘will-she-won’t- she’ Yellen and the FOMC voting to start raising Fed interest rates is ‘normalization’. But whatever the Fed does it is no way going to be ‘normalization’ in any realistic sense of the word relative to past ‘normal’ interest rate patterns. The general consensus at the Mines & Money conference in London this past week was that rate rises would almost certainly begin this month as Yellen and the FOMC have talked themselves into a position where not to do so would destroy any remaining credibility that the Fed may actually have brought things under control – but ‘normalization’ – perhaps not..

Let’s face it, interest rate normalization is not raising rates by 25 basis points but more like instigating the start of a raising program which will see them rise to 2.5% or higher and there looks to be no way the U.S. economy is strong enough to handle this even over a couple of years. Indeed another one of the prevailing thoughts at the Mines & Money conference from some very savvy analysts and commentators was that even if the Fed does raise rates by as little as 25 basis points now, it will likely have to backtrack and bring them down again within the next six months AND then instigate a QE4 on top of that. The stock markets are weak and potentially on a hair trigger for a massive collapse. Q3 earnings figures from major companies were mostly pretty dire and the strong dollar is eating into exports, while making imports ever less costly. Government CPI and unemployment stats are largely a farce. The market is being held up by sentiment alone – certainly not by fundamentals. And sentiment can change overnight, sometimes on a seemingly innocuous piece of news.

The gold price performance today, and that of the general equity markets, ahead of any Fed announcement has been perhaps enlightening. At the time of writing gold has risen about $30 above its recent lows. Suddenly what had seemed a foregone conclusion that the Fed would start raising rates this month has perhaps run into doubt. While we await the decision we still feel the Fed is too far down the line not to raise, although we would see the possibility of a smaller rise being implemented. In some ways the Fed could be damned if it does raise rates, but perhaps even more damned if it doesn’t. A 10 basis point increase would be an uneasy compromise, but has to be a possibility. However it would be seen as a sign of weakness.

The fall in the dollar index by nearly 2% though would also definitely have strengthened the gold price which tends to move counter to the dollar. Whether the sharp dollar fall was a natural progression or part of Fed machinations to try and keep the rising currency, seen as damaging to the economy, under some form of control is less certain.

While some key indicators, notably today’s nonfarm payroll figures, are just what the Fed needs to support the interest raising decision, there are others like the recent Chicago PMI figure coming in at 48.7 (anything below 50 is seen as negative) suggests that all is not well in America’s industrial heartland. Tuesday’s broader ISM manufacturing index figure was equally pessimistic at 48.6, although the ISM services index was positive at 55.9, despite this being a little down on the previous month. So all in all it does look like the U.S. economy is far from out of the woods.

As noted above, the US Dollar Index dipped back from a brief foray above the 100 mark, back down to a current 98.3, which may have reduced slightly continuing concerns about U.S exports, although this is hardly conclusive. Mario Draghi’s decision for the ECB to only reduce bank deposit interest rates by a smaller than expected 10 basis points helped here. A bigger reduction might well have seen the euro move to nearer parity with the dollar.

Gold’s healthy performance today was despite the positive US nonfarm payroll figures and was perhaps down to the feeling that it has been oversold over the past month or so, resulting in a certain amount of short covering. Markets often react too far in this manner – but even so, if the Fed does raise interest rates by the expected 25 basis points it could take a further knock, but anything less could see it soar.

Julian Phillips’ analysis of matters driving gold and silver prices. The U.S. Fed is still non-committal on when it may start to raise rates while the possibility of Grexit looms ever closer

New York closed at $1,187.10 up $5.40. The dollar is weaker at $1.1387 down 1.2 cents with the dollar index down to 93.87 from 94.90. The LBMA Gold Price was set at $1,198.50 up $19.50 with the equivalent euro price at €1,051.22 up €5.62. This price was higher than pre-setting prices in the market! Ahead of New York’s opening, gold was trading in London at $1,197.60 and in the euro at €1,050.34.

The silver price fell to $16.17 up 15 cents in New York. Ahead of New York’s opening it was trading at $16.28.

In the E.U. the mood has changed markedly. Greece is blaming the E.U. and the E.U. is blaming Greece. After disastrous meetings of the Finance Ministers both sides are now behaving as if no deal is possible and acting accordingly. The euro is getting stronger, as we would expect on a Grexit. Greece is making clear it doesn’t have the money to pay the next installments. After all €6 or €7 billion on a debt of €320 billion only postpones more disaster and as the Greeks see it, with a chain around their necks. Suddenly this is not just about Greece. It’s about the future of the E.U. and the euro, which is why global financial markets are riveted to this story. But it is also about the geo-political balance of power, something of greater consequence to the world.

The other most talked about story in global financial markets focused on Janet Yellen, Chairwoman of the U.S. Fed. The statement issued by the Fed confirmed improvements in the U.S. economy, but Janet Yellen used the word ‘sustainable’ growth is needed before the Fed will lift rates in very small steps. She was concerned that wage growth also needed to improve more.

Between these two stories markets saw the dollar weakening and the gold price move higher today.

On the Technical side we continue to note that the picture continues to point downwards, but the reality is that the gold price has moved sideways. The two must meet and raise the question is overhead resistance likely to dominate the sideways movement and force the gold price down or will the sideways movement break overhead resistance and see the gold and silver prices rise? We are very close to that point now!

Before the conclusion of the Greek debt crisis came so close the euro price of gold fell far more than it did in the dollar. Today sees the euro price of gold dominate the gold price, which is steady in the euro while the dollar price of gold has jumped as the dollar weakened. Seen as currencies moving around the gold price, we get a better perspective.

There were no sales or purchases of gold from or into the SPDR gold ETF or the Gold Trust on Wednesday. The holdings of the SPDR gold ETF are at 701.897 tonnes and at 167.01 tonnes in the Gold Trust.